While many people think short sales are a lost technique or too difficult to do, they really are as strong as ever. Just watch your step and do them right.
Some real estate investors make the same mistakes over and over again. Here’s a better idea: Learn from your mistakes, follow these 10 steps to successful short sales–and close more deals.
1. Be certain that your homeowner is completely under control.
Many investors sign sales contracts with homeowners who aren’t 100% committed to the deal. Make sure the homeowner signs a sales contract, POA (power of attorney), and whatever else you need signed.
2. Know when the foreclosure sale is scheduled.
Investors will work on a short sale for months only to see it sold at the foreclosure sale right in the middle of the negotiations. Most investors assume that because the bank has agreed to negotiate the short sale that the foreclosure sale has been automatically postponed.
Not true. Unless you have it in writing that the foreclosure sale has been postponed, you might lose your deal right in the middle of negotiating the short sale.
3. Present a good, easy-to-read short sale package.
Fancy, coil bound, complicated packages are out. Simple, easy-to-read packages are in.
We always use a three-offer process. Keep each offer short and simple to ensure that the loss mitigation rep reads it. Each offer has a focus:
- Emotional attachment
- Loss of income
Be clear and concise with each offer.
4. Recognize that you need to invest three months in a short sale.
Because banks are so smacked with foreclosures right now, it can take up to 30 days to get a rep assigned to you, 30 additional days to negotiate the short sale and get it accepted, and then 30 more days to close the deal. Some deals will take less and others longer.
5. Do not disclose the property address to possible buyers until you have an accepted short sale offer from the bank in writing.
Many investors make the mistake of sending potential buyers to the property before they have a short sale acceptance in writing. Unless you know the potential buyer very well, you leave yourself open to an investor who may try to steal your deal. The potential buyer may offer the homeowner more cash and push you aside.
6. Know what type of financing your buyer is using.
Many investors assume their buyer has cash then find out in the end that the buyer is using conventional financing and needs 45 more days to close. You will lose your deal if the proper financing isn’t lined up. In order to keep your closings moving along, tell your buyers that they need all cash or transactional funding and to get it lined up immediately.
7. Attend the BPO (Brokers Price Opinion).
Not attending the BPO is a big mistake because it can make or break your deal. You must attend whenever possible, so you can show the agent the property from your point of view.
Remember, most loss mitigation reps live in a different state and don’t know the property values or neighborhoods in YOUR area. Showing them the property from your investor point of view builds a much stronger case. If you are unable to attend the BPO use a Flip video to send the bank some “investor footage” of the property.
8. Don’t try some “slick” way to close your deals.
Real estate investors are so worried about double closings that they try every trick in the book to close their deals. Keep it simple – just do a double closing or put the property into an LLC and sell the LLC and its’ assets or put the property into a land trust and sell it in the trust. It’s that simple!
Your closing agent should tell you exactly what you need to do to comply with your changing states laws.
9. Work 10 deals at a time.
Unless you don’t need to eat or have no bills, you should be working at least 10 deals on any given day. You may get 90% of your short sales accepted, but only 50% will close. There will be title issues, buyers who can’t close, and various other issues. Always be prepared for deals to fall apart. Having a huge pipeline full of deals is key to your success.
10. Stop trying to reinvent the wheel.
Many investors think that they can listen to a few free calls, take a few notes, and do this business without making any mistakes. Be realistic, you must invest in your education. If you see a short sale system that is working – buy it and use it. There are many instructors out there. Some are very good and some are just after your money.
Use your best judgment, find someone who cares about you and your success, and follow them. If they have a proven method, don’t try to reinvent the wheel. The shorter your learning curve, the faster you reach your financial goals.
I say, work with me!
11. Bonus Tip: Be open to change.
Don’t get locked into doing things one way. As real estate markets change, so should your investing and exit strategies. If you can’t adapt, you can’t survive.